Now that 3 years have passed since I got my graduate degree (and the founding of my current startup), I think I can
make fun of it a bit. [Note: Only
a moderate amount of harm was inflicted on MBAs — and investment bankers, in the
making of this article].

10 Things Most MBA Schools Won’t Teach You About
Startups

1. No amount of strategic planning will ever substitute for managing your
cash flow. Financial statements are great. The most important one is your bank
account statement.

2. There are always more things to do than there is time to do them.
Startups are a continuous exercise in deciding what not to do. You can
sometimes win by just not doing things faster than your competition.

3. Sleep is that time you’re working on startup problems with your eyes
closed.

4. It helps not to call people “human resources”. They’re people. And, as
it turns out, people like to be treated like people. Go figure.

5. No amount of academic theories on efficient pricing will prepare you
completely for what people will actually do. Finding the “optimal”
price is really hard. In the meantime, remember that a sub-optimal price is a
lot better than no price at all.

6. Price discrimination (in an economic sense) is a wonderful thing. Except
that it often ignores the real costs in terms of organizational complexity.
Every time you add a new product or product option a small part of your company
dies.

7. There are an infinite number of ways to spend money on marketing. You
have no idea what’s actually going to work. The idea is to experiment broadly
and learn lessons cheaply. On a related note, no amount of MBA marketing
classes will prepare you for the day that you have to produce leads in order to
close sales. As it turns out, marketing is about more than product feature
matrices and the right shade of blue for your logo.

8. To recruit the best people, fair compensation and equity are only a
start. Company culture and a demonstrated passion for your vision is hugely
important. (Oh, and your vision should be on the larger path to truth, justice
and overall goodness). Your vision should not involve harming kittens. They’re
adorable. [insert gratuitious kitten photo here]

9. There’s a lot of value to being likable. Good things happen
when people like you. When people like you, bad things have less of a chance of
being fatal. I advise being likable. That’s why I advise against being an
investment banker after getting an MBA. (I also advise against being an
investment banker before getting an MBA).

10. Advanced game theory is exceptionally useful. Basic game theory is
dangerous — because it assumes that you’re dealing with a bunch of rational
“players”. It’s like trying to design a real car that’s going to be driven on a
theoretically frictionless surface, with no air resistance and no idiots on the
road.

What are your top startup lessons learned that even the top MBA schools don't teach?

A big lesson for me was SALES. There's very little coursework in MBA curricula around how Sales works... Can be a rude awakening for freshly-minted MBAs who know all about Porter's Forces, and nothing about how the Sales mind, the Sales organization, and Sales processes work.

Michael

Competitors & customers can, do, and will do irrational things. Neither care about your title, your education, your pedigree, your investors, or your SAT scores. Despite that it's seldom that either personally dislikes you; they just have different motivations.

If you don't have customers, or pushing hard to get them in a finite time-frame, you're not really in business. Customers are defined as people or organizations with whom you have an arms-length relationship -- no, your dad isn't a real customer -- and who pay more for something that it costs you to make it.

Competitors are defined as people who want to take your customers and/or their money. A lack of competitors is almost always a bad thing because it means the market you entered doesn't interest anybody else. And, no, you're not as brilliant as you think -- others do get it; if they're not there they just don't think there's any point. That's usually a bad sign.

One customers vital feature is an opinion. Two opinions are influential. Multiple opinions become exponentially more important. Remember though, customers are people who pay you. People who keep making demands but aren't paying are called "chain yankers" -- a term probably not learned in school -- and are usually best ignored.

Dharmesh Shah

MeanRachel: Thanks for the comment. I don't have an issue with the HR function/department. Just that treating people as "resources" sounds misguided.

I'll suggest something new: Instead of the Human Resources department, how about the Team Happiness department?

Other things we had to work on are creating an effective "meeting culture" and "Internal Blog on weekly updates". There is so much happening all the time in a fast growing startup that there are real efficiency drains or gains to be considered here. MBA schools teach you some of these but really these change when you have highly leveraged employees.

In response to the human resource entry and comments: I think that every time a word is substituted for another you run the risk of removing the core meaning. However, if you consider that people are essential resources and people as employees are only part of your human resource equation (add to them your customers and vendors), then perhaps people being thought of as resources might emphasize their value.

A couple of things to add to this. I learned these the hard way (my MBA was no help at all). This has more of an engineering slant on it since that's my background

1. Tell The Whole Truth: Too often engineers only give the bad news not what is working. This makes dealing with issues a lot harder.

2. Take Your Time But Hurry Up: Pace is so critical to doing quality products. I always hear time to market this and that. Well, you can get it done fast and still not be successful if the team is so burnt out they make mistakes.

3. Business Deals Take Time: I could never get my head around this until I had to do a deal. Most engineers just don't get why doing a deal takes so long. MBA school had no clue either.

Choosing the people on your core founding team (first four or so) is an important factor in success. They need to be smart, energetic and committed. It helps if they can fill multiple roles at the same time (sell, write software, deliver services and invoice).

I like to say that a startup is like a rock and roll band. You can fail if you don't have the talent, don't produce the right product, egos get out of control or people lose direction.

Get the right people with the right attitude, and you'll have a much better shot.

Dealing with fear. Fear of failure. Fear of the unknown. Even the fear of success. Fear can consume and destroy a business owner/CEO. Instead embrace it. Use the fear to motivate and power you towards success.

Adaptability and the wisdom to learn from mistakes are almost always overlooked especially as a quality to have in the c-level management of a start-up. You can have the best business plan in the world and the most expensive market research money can buy but ultimately the market will dictate pricing, terms and conditions. If you're not listening and adapting to what your customer wants you are doomed to fail and will also be blind to additional opportunities.

Luck and timing. They cannot be controlled or accounted for in advance. Only the innate ability to look from different perspectives can assist with managing and capitalizing on these inevitable variables.

I agree - especially with 6,7,8. I could probably add "Don't confuse education with thinking" and "Success is 99% failure - so try and fail as quickly and cheaply as you can"

Todd Chalem

1) Turn a profit, even a small one. 2) Forget changing the world. 3) Make small plans

Gavin T

Delightful wonderful post as a mentor I wish people would listen when we tell them this up front but they are always full of the joys of knowing they are going to change the world [not necessarily a bad thing]and the told you so's do not have the power that you would wish

It is good of you to take the mystery out of starting up a business. Your comments on sales and marketing are right on the money. I especially like your statement about thinking of people as people, hot human resources. For my start up - it is the personal relationships I build which cause my business to grow. Each customer (no matter how small) is important to me and they know it.

Lesson not learned from MBA: That the transaction itself changes the price of the similar good or service. It's incomplete to think price is determined only by supply and demand. The fact whether a deal went through or not changes the price.

Most of the guys dream of landing plush jobs at high tech companies with big stakes and churning out millions when company is sold or acquired. Not always true. In tough times, the start up teaches you how to survive. Not to give up when times are tough. It is easy to hang around in good times, but can you do same when times are tough ?

I love, love, love this post. Who among us hasn't experienced the troubles Dharmesh so keenly pointed out. As the owner of a startup myself, I find that striking the balance between work and family life is hard, especially with 2 young children. You must learn that interruptions are the rule rather than the exception, and you must develop ways to resume your train of thought quickly. My day has become segmented, but somehow I've managed to make it work.

Thanks for sharing your thoughts, I'll be sure to digg!

Harland D

I agree with the statement on cash. Cash in cash out. yes I know all the other stuff but it's largely abstract. Lack of cash it what kills a business. As for HR I worked in a firm with 3500 employees and no HR, one of the best places I ever worked. Then they employed a bunch of MBA's it went down the pan and has been broken up. Don't get me wrong I'm not against education, but its not a substitute for thinking. I've always been the slow one, I've never just accepted what's put informant of me. I have to work things through for myself from the ground up. If it doesn't make sense then it's trashed. The fact is no one knows, there is no answer because the problem keeps changing.

Adaptability is key. Avoid getting stressed out from all the ups and downs of running a company.

We don't have an HR dept either. Don't need one. If you can leave your ego at the door and hire people without big egos that can understand how to look at a problem and be open to solutions no matter where they come from, then you have something. Keep those people.

BTW, these are NOT "your" people or the "company's" resources. These are just people and just because you can boss them around doesn't mean you should. Then you are just a dictator and not a leader.

I really like the part of doing business but also doing "good" business. Item 8.

On pricing - I think a lot of companies will hire PhD to figure out pricing. It is really easy. Figure out what profit is fair (don't get greefdy), take your costs into account, and the set the price. Now, if you cannot justify the value the customer is getting for that price, then that is a product you don't want to carry. If the first question from the customer is about price, you probably don't want that customer because they don't care about the product or the value.

Sales - Being pushy sales people doesn't work either. Sales is about providing enough information to the customer to make an informed decision and do it quickly. This means, don't try to get cute with a lot of marketing bullshit and put out flowery language. I am amazed how many web sites that sell products have little to no detailed information about their product or better way to search for what their customer is looking for. This goes for us as well and we are trying to fix that all the time. Get exposure to potential customers as cheaply as possible and then make sure that all the information is there for them to make a decision. Then, it is up to them whether they like your product or see value in it or not. If they do like it, and order, then ensure that you deliver on time, and the process is the easiest that you can make it so they become a repeat customer.

Solve a really important customer problem. Business school gave me no advice on how to understand market needs, let alone whether the problem your idea is solving is one that's important enough for a customer to devote time and attention to, as well as write a check. At least half the startups I work with have this problem. It doesn't matter how good their code or gadget or technology is, the company will fail if they don't align around an important customer problem.

I do not think an MBA is a wise investment of ones time. "Students" would be more intelligent to begin the path to failure on their own terms. This effort statisically leads to failure, which leads to knowledge from experience. Effort + Experience + Some luck (can)= Success.

David Blakely

Great points, and I'm passing them on. But, the thought that always hits home with me involves funding. Even if you get all the rest right and you're underfunded you're going out of business. Double or triple your timelines to profit and use the same multiples for funding.

Great post and even better comments. I have an MBA, and other than the accounting I learned so I can keep track of what's working and not working (I like #1 on your list), I could have learned a lot more if I spent those 2 years in a startup.

My lesson learned is similar to #7. Often when sales are less than expected we blame the sales manager and/or sales force. Almost always it's the product or service that needs tweaking, or maybe even ditching. Test market people - don't rely on sales forecasts. If prospects won't open their wallets for the beta or prototype, then no amount spent on marketing or sales will matter.

The number one thing they don't teach in business school is manufacturing. They don't, they really don't. People get all tied up around business plans when they have no clue what their product costs are or even how to manage the product development process. Their strategies focus on ways to squeeze vendors and service providers for a piece of the action or drumming up investors when they should just throw something together and see if anyone buys it.

I had one woman who said she spent the last six months of her MBA writing a plan with the works including compensation packages when she said it would have been better to write about sourcing inputs and labor. I've been in apparel manufacturing for 27 years and have yet to see a business plan from a B-school grad that will fly.

I always like the "Personnel" department. It is classy, personal and has a somewhat more intimate feeling. I found when Personnel changed to Human Resources the relationship and courtesy went out of the department and a cattle call mentality came in. I may be showing my age, but I still think people need to be treated with human dignity, common courtesy and respect. This is especially true for small businesses. I have owned my company,PMW.net, for 15 years and my staff has always known that I treat them with respect.

I think anyone that develops and launches a start-up has to be a little bit of a non-conformist. No matter how great your service or product, there are going to be very smart people who's advice you care about telling you that you're service or product is crazy and will never sell. You have to simply absorb their advice, but keep on moving forward towards your vision. You can adapte your vision, but the second you let outside forces coopt it, you've already started to fail, at least in my mind.

You have to either have very think skin or you need to grow it fast. You have to few building a start-up as a many year process. It's not going to happen in three months. It may take three years. It may take five. You have to prepare yourself for pushing through the times when you're seven second-guessing yourself. It's very much like a marriage. It takes work, even when you think things are going great and especially when things are not going at all.

I just launched my first product after three years of development. Now we're into the sales phase and it's like I just moved from the part of the iceberg that's below the surface to the part that's above...it's an entirely new process when you add marketing and promotions to the list of things you absolutely have to do on a daily basis. I was already wearing 20 hats...what's a few more, right?

It's hard work. You may suffer for the focus you put into it, but the reward is worth it. You just created something new and it really is a fantastic feeling.

Dave

I agree that an MBA does not give you everything you need to run a business; sales training, graphic design, or web design to name a few. I completely disagree with points 1, 3, 5, 6, and 10. All of that info was well covered in my MBA course work at SDSU. When people study for an MBA they are not getting real world experience. They are however learning tools that can be applied to the real world. Any school that is teaching only theories without talking about their application in the business world should be discredited. What school curriculum did you pull this info from?

Shit happens, but it's usually not as bad as it first seems. Cash is King Content is Queen Keep your focus on one ( two at the max ) main goal New business takes time. Push enough goo down the pipe and oil will eventually ooze out the other end.

Albert Six

After you made all your plans, keep in mind that anything can happen to anybody any day.

When hiring somebody you could ask:

"It takes many different talents to make a play possible in a theater. You need somebody to write the play, actors, an accountant, decors.... What contibution would you like to make to a play. It can be a lttle bit of this or that?"

That's an easy way to see if he/she introvert or extrovert or ....

Bob S.

This was a great read.

I'm not sure I get the last part of comment 6 - "Every time you add a new product or product option a small part of your company dies."

Certainly managing and minimizing complexity are important to managing cost and the ability to execute. If you are in a technology / innovation driven start-up it doesn't compute that adding new product options kills your company.

I prefer thinking about the costs of complexity in markets addressed, needs addressed (features expanding in a target market as opposed to new functionality target), deliver channels, platforms supported, and so on.

My MBA is from UCLA - which has a good entreprenuership program. By the time I went to school I was working in my third start-up - so the MBA program didn't add much.

During the time I was in school a couple of us worked on a number of business plans. The take away from that effort - maybe a by-product of school - was to focus the new company we created based on the experience we already had. No amount of MBA training can replace craftsmanship and practical product knowledge.

Re #7, I believe in figuring out the one thing we can say about our product that is true, and that no one else can say about their product. Satisfied customers buy (and, more importantly, re-order) a product that does what they expect it to do.

Xavier

I've just received a masters degree in Entrepreneurship and I feel only sympathy for what is written in this blog. Reality doesn't make sense, people are irrational (employees! entrepreneurs! and especially customers!) University/MBA's only give a very thin thread to hold on to, but one can question if holding on is the best way to go. I think getting dirt on your hands, whilst trying to be objective about your path and business would work best in the end. Passion, effort, ambition, effort, effort and effort are key. Not burning your initial investments would help too ;)

First off great blog! I thoroughly enjoy the newest article postings through OnStartups.com.

Second, I light of your occasional angel investing endeavors I’d like to engage you in further discussion on my startup.

In a nutshell, the company is called TextGuard and is the latest and greatest in mobile communication security. Our hosted application can secure, manage and archive all mobile communication and their devices. All done from a remote server, SaaS.

In any event, love to discuss with you further. I can be reached at agunn@textguard.com.

I have worked with a couple dozen high-tech startups and the two big problems are products that don't work and forgetting to build a revenue line. Everything else is small potatoes. Everyone is working on the product but at least half of all tech startups do almost nothing about the revenue side. Most have the attitude that the product sells itself, or that sales and marketing bullshit is unethical and ineffective anyway, or that a couple of smart engineers can hit the road and sell -- just by educating the prospects -- the product. No. Recruit, hire and pay people who can handle the marketing, bus dev, and sales functions at least six months before the product will be market-ready. I know it's expensive (typically 50% of your burn rate) but it's tragic when good products never make it to market because they were never properly sold. If no one in your company knows how to find qualified leads for your product, you are in big trouble.

Suman Mishra

An MBA does not give you real world experience. My entrepreneurship classes at University of Chicago did a great job of preparing me for my own business. My MBA also provided me access to all kinds of resources, advice and networks that I could not have accessed before. These made my life a lot easier when I started my own business.

I have always found it amusing that there are classes on entrepreneurship. I joke with a close friend and fellow long time entrepreneur that we paid way more for our MBAs than if we had gone to b school. However, we're proud of our degrees from the school of hard knocks.

This is a Treasure: well said; well commented - so many points of view represented here. I would add that startup entrepreneurs need a handful of trusted, objective advisors who will share their perceptions of what's so - no matter what. So important to see ourselves, our work, any controversy, the current situation through other's eyes. These advisors will stick with the entrepreneur through it all.....

Bob S.

My experience - it is better to have more concrete standards than honesty, integrity, value. This is not to denigrate a good life - but the meaning of these does vary by background, experience, and company function.

For honesty - I would say in the sales process - never promise something you can't deliver. Sales is still about positioning, putting the best light on your product, and at times building and selling your product at the same time. There are no perfect products or perfect customers - competitive advantage is still needed.

For integrity in business - no one deal or opportunity should be worth damaging a long term relationship (business or otherwise). There are plenty of people who will shoot their best friend for the chance at one sale.

Value is trickier - but one question you can always ask - how are you continuing to invest in your customers and their experience after they have purchased your product. Value relates to the entire customer experience.

I have watched with fascination as MBA's come into companies to transform them. However, they base their recommendations on theoretical models they learned in school and not on the reality of how that company works. Almost every company has what I call "idiotsyncracies." Some crazy thing they do that works for them but would never work anywhere else. MBA's always want to "correct" that and end up destroying something special about the company that is sometimes even fatal.

If entrepreneurs weren't a little crazy and with their own "idiotsyncracies" they would still be working for someone else.

The key benefit of a MBA is the opportunity to network and build relationships across functions/industries. You often focus narrowly on a customer segment or few key operational/strategic items. No MBA program is going prep someone to master all key functional roles (mkt, finance, sales, HR, ops) so it's important to network to find SMEs that can help or join your team.

I forgot to mention that I have neither an MBA or an undergrad degree. 24 years from the school of hard knocks. Of course I wish I had it for the networking aspects. The most successful businesses I see are ones where a group of friends help each other succeed.

Great posting. I have had my business for 14 years and bootstrapped every penny. It is a long road. You would really enjoy my Entrepreneur column. I am the Women's Entrepreneur columnist for the DC Examiner. I wrote some articles that appeal to start-ups about cash flow, marketing, and shifting with the market.

Here is the link:

http://www.examiner.com/x-12152-DC-Womens-Entrepreneurship-Examiner

Also, we were just recognized as USAID's small business success story, and I had to provide busines advice for other start-ups in my interview: Here is what I wrote:

Align your capabilities to the vision and mission of your client. Lead with value and don't expect entitlements because of your socio-economic status or business size.

Stay true to your core competencies. Surround yourself with others that share your values and know more than you do.

Ultimately, the CEO's position is to simultaneously lead and serve others.

Never over-promise or under-price to secure a win. Honesty and integrity will always lead to a customer relationship in which both parties prosper. There will always be individuals who want to undermine you or celebrate your failures. Take the high road where they are concerned and focus on positive outcomes. Embrace the challenges for they often provide wonderful teachable moments. This is when we learn and grow the most.

Bridges are for building, not for burning. You never know when you will be working with people from your past, so always be respectful, dignified, and professional. Paths cross when and where we least expect them.

Remember to enjoy the journey and acknowledge your daily successes. Give back and be a part of something bigger than yourself. Laugh every day.

The MBA Story is fun to beat up on. I agree with almost every comment, plus the article itself. One thing touched on lightly is to never join a "Family Dynasty" company (even start-up), and expect any type of productive role without being a member of the family.

Craig McCord

Stan

oh.. again.. you guys are so childish.

in fact all the good b-schools teach all this. but the truth is: YOU WILL NEVER LEARN ANYTHING UNLESS YOU ARE READY!!! no metter how good is the course! we all do our own mistakes even if you are told 100 time "don't do this! it is a mistake!" you will still do it, probably few times, then you will LEARN

trust me, when you grow up to much bigger operations (if you are THE ONE of thousands) you will have totally different lessons, and you will be much more tollerent to MBAs

1. No matter how great the product or service, nothing happens until something is sold.

2. Many MBA programs focus on raising capital, which is key to many R&D and capital intensive start-ups. But, MBA programs lack focus on the sales or commercial side of generating cash to fund the business. Commerical money is much more valuable than investor money. Focus more time on commercial capital than investor capital, once you have a product to sell.

3. Do the right thing, which may often be different than doing the best thing. As this relates to product development, waiting for the product to be best before release will often put competitors ahead of you and you playing catch-up.

I've done the academic MBA and the practical MBA, helping many start-ups launch, and the practical MBA is much more valuable.

Greg, I agree. A product can't sell itself, and educating customers won't pay the bills. You run out of cash before you run out prospects. Most start ups should start selling the product before they think they should. Start by "selling air" you may be able to, or have to, change your product before it hits the market.

Gene E. Moore

Aloha!

Not to slight an MBA, but sometimes later on in your business life it adds to the credibility for the one’s out there who can prevent you from starting a new venture or expending an existing one.

Yes, there a lot of credentialed people are doing VC.

So, I do recommend a duel track. Yet the school of hard knocks is still the best teacher. However, a lot of customers, vendors, and even money people, only recognize the learned halls of Ivy as the way to learn.

I have worked with hundreds of start-up entrepreneurs, and the first things I have them learn, is how to do a business plan and how to sell. Next, I have them bring on two others who have skill sets the entrepreneur is lacking. Then it is updating the business plan and perfecting their 15 minute presentation package.

At the same time, we are attempting to hone the product or service, so we can attract some Angel funding.

Mahalo,

Gene E. Moore

AKA Bro Kini

I hold both an MBA and a SPHR, so please do not hole it against me!

Robert

Respectfully - almost anyone with an MBA is going to defend getting their MBA. You evaluated your options and made a choice. Besides, I doubt your going to say a 100K degree is worthless...

Granted - it may stop you from making some mistakes but others may get you. I've made some and will make more.

And there are so many things a formal education does not teach: *creativity *drive *tenacity

How about managing the emotional roller coaster from: *a pitch meeting turns into a feeding frenzy and having to do it 5 more times that day. *a mediocre or bad review *all your credit lines being cut due to behavioral profiling in an economic downturn

The difference between success and failure is learning from your mistakes and getting back up to try again.

I just started reading Deep Survival - Who lives, who dies and why by Laurence Gonzales. There are traits needed to survive in any situation - do you have them?

Great article! - and great comments! From the point of view of someone who has built a huge people-business from ground up with no MBA, also done (external) corporate Recruitment - I wish more people understood this stuff! ...Love the phone answering style...

I love this! I have been stressing to my clients (many of whom are startups or small enough to function like start ups) that the cash flow statement is much more important than the P&L and Balance Sheet. The cash flow statement, simply put is a reconciliation from your net income (P&L Bottom Line) to your cash in bank at the end of a given period. This will show you where the cash flows are coming from. Operations = Good. Investing activities = OK. Financing activities = fine but it can't go on like this for too long.

All of the sophistocated analysis in the world cannot replace basic common sense tactics, and yes people will buy your product or service simply because they like you. It is also important that you like your customers (for service based businesses in particular). If you do not like your customers you will by design not to the best you can for them because they annoy you. I've found that I was much better off letting go of clients that I didn't like and working my @$$ off for the ones I liked. I am happier and they are happier. The energy spent on bad reltionships can be much better invested in efforts to get new, likeable clients.

Finally, pick one night a week to go out for Sushi and relax!..

Mark Molau

Great comments all! I decided a long time ago to not pursue an MBA (after I was accepted to Stanford and Berkeley)... as I couldn't see the ROI after working on two of my own startups.

I do agree that the access to resources, networks and especially exceptionally bright people at the best schools is a huge plus and this is the part that I missed the most.

I have worked with a number of different tech statups in the software, SaaS and web space over the past 2 years. Everything rings too true.

I am now working on a management and tech consulting services startup play and I am curious to what different folks have to say about their experiences there.

The sales process/cycle, working capital requirements, overhead/startup structures, etc. are quite different from a product-based startup. It also seems like the upsides and downsides are different as well.

I teach MBA's at Rutgers... Managing Technology and Innovation and I've built three businesses from scratch. You are not a true entrepreneur unless you have lain awake at night worrying how you are going to have enough cash for this week's payroll! they don't teach you about meeting payroll in B School.

and They don't teach you to be well capitalized initially... otherwise instead of being an involved entrepreneur doing all the functions listed above, you will be spending most of your time in your first three years chasing money so that you can meet payrolls, etc. and not building the business you imagined. point 2... you never raise enough initial money.

alan b. shalleck, Ph.D.

Narender Rao

Great Insight, I do not have an MBA. I wanted to acquire but was not sure if it is worth the cost and efforts. I built and gone through couple of startups and and couple of big giants. I learnt that bank statement is important, networking is important, timing of your product launch important however good it is. I believe business is no fun if you have stress it out and waste your precious life with high personal stakes, this I would say even if you succeed after at the end. Now a days only corruption and networking seems to be working in the corporates. Take care !

Jerry White

Anyone who expects any education program to teach you all you need to know is not being realistic. Education is a basis for developing ability, and nothing more. My MBA program (Ivey School, UWO) taught us how to think about problems and address them, with business theory as a backdrop, which was great. Still no substitute for real world experience, but a headstart that helped many of my classmates and I to make the most of the experience we later gained.

Also, some corporate experience after an MBA can be a great asset - both for learning what works and what doesn't. Great lessons to take to the start-up world, where I work now.

Great stuff. I will say that I attended a panel on entrepreneurship at Wharton a few weeks ago, and it was the least valuable or interesting 90 mins I have spent in a while. I learn WAY more about entrepreneurship in my daily interactions with other small business owners. (No, I didn't go to Wharton, I was crashing his 5-yr reunion!)

Think positive and have the right attitude. Believe in what you are doing and expect good things to happen. See the invisible and visualize what it is you want and think/believe on it.

You should wake up and start each day asking yourself what you expect today - then answer it. What do you expect today?

Have a clear picture of the end result. Hint..Don't think small here. If you think small, expect small. If you think failure or dwell on fear, that is exactly what you can expect.

I think the biggest issue startups have is letting themselves get run over by fear, doubt and lack. Do not focus on, speak of or think on these things - even when these things seem to appear in your face.

You will manifest what you believe if you can tap into the invisible realm. Remember, everything comes from the invisible. Solid faith & hard work will bring your desires into your hand as the stuff you want - regardless of the economy or what people say.

Jim Bob

fyi - a car cannot be driven on a theoretically frictionless surface. Friction is required in order to move.

Great post and fabulous comments. I hope you will give me permission to post this on our website.

I did my MBA after 20 years of becoming a qualified finance person and though there is a lot to trash MBA they still serve a purpose. Like Newton said when he was asked how he managed to disocver gravity - he said 'I stood on the shoulders of great men to find out..'

Practical experience post or pre MBA works wonders and one should not loose sight of common sense post MBA. The academic rigour and tools that MBA gives a person helps in exponentially exploiting your intutivenss and practical experience.

My three start up experiences post MBA taught me a few things:

- sometimes keep doing good without being able to sight an immediate reward. The reward comes in from unexpected quarters and at most opportune times.

- Cash is king whether you are working out your monthly cash flows or when you raise money and compromise on valuation. Chase cash all the time.

- Prompt response is the key word even if it is to say you dont know. You may go wrong sometime but the number of times you hit the nail is far more rewarding.

- become a 'reliable person/company' straight shooting at all times.

- give credit all around and it comes back with dividends.

- work on three dimensions in parallel - the NOW, the FUTURE with the learnings from the PAST. Only fools repeat mistakes.

I've looked into MBA's but found that running my own little business was all the education I needed (and it paid me!).

I started my business as a hobby with the intent to take it full time and beyond (which I acheived and then some!). I learned to make a splash for less. I had to!

My words of Wisdom:

* Know your daily cash position - in the bank, in AR, in AP and in inventory. Cashflow is GOD!

* Automate where you can!

* Relish the slow days! Crazy? These are the days you start to hatch those ideas in your head. You know you've got a ton of them... Some of them are uber profitable!

* eBay is a search engine if you think about it... They search with the intent to buy!

* Get a mentor or sounding board! I choose not to talk with my Wife all of the time as she begins to glaze over when I get excited at midnight, 6am, anniversary dinners, etc. A mentor is really like a therapist if you think about it...

I fear wasting ink here as the above is so complete, but for your viewing pleasure I will add my partner's famous saying:

"What does HR do?"

Lav Nigam

I really appreciate the 10 things mentioned. I would like to add just one more to that. I have set up 3 start ups and have found that every start up has a different problem and there is no ready made solution for any problem.

I wanted to say a few more words about selling because there's been a lot of talk about it here. I don't beleive that real salesmanship can be taught and I also don't believe you are either born with it or not. It is something that develops within us and I want to be specific here because I have a lot of experience with this. I've learned the "hard sell" of a Wall St Cold Call and I've learned the soft sell of a handshake and a hello at a Chamber of commerce meeting. I've been in situations where I know I was saying all the right things and still couldn't get a glass of water sold to a guy in the desert. The difference is one key ingredient. Enthusiasm and even more than that, Passion. The "iasm" in enthusiasm stands for I Am Sold Myself. The passion is where the selling becomes second hand. You have to love your product or service. You have to be in love with what you have to offer. If that holds true then you can sell anything. If you don't really believe in what you're selling, that is where you will fail every time even when the prospect desperately needs what you have to offer. This works when you are going to get your VC, and this works of course when your prospective customer is at your door wondering if they want what you have. Just because they need it, doesn't mean they want it. Don't create the need (that's a hard sell and only works short term). Build a long term relationship by demonstrating the benefits and letting them see how much you are in love with it. Then they will feed off of your passion and they will have to have it. That's real salesmanship - it comes from the heart. You don't learn that in any B school, you learn that by going within yourself and selling what you already love.

Thanks for reading.

Gautam

An MBA program definitely does not equip you with whats happening in the real world.

Sales as a function is not given any importance.

Couldnt agree more on the importance of Cashflow..

We operate in the retail environment and heres what we learnt in the 1st 3 months:

1. It is better to sell with profit minimization than not to sell at all.

11. A bad decision is better than no decision at all. 12. Market research is product launch. (There's no better way to research a market than just launching a product. This is especially true for online software as it involves hardly any costs.)

I think dealing with competition is taught from a totally different perspective at bschool. Assuming that there is an existing market, an existing pipe line of customers and new products, strategic planning and business intelligence is a must in a large corporate (totally agree with point 1, Dharmesh!).

Most startups (or sme) are either in a huge market or just have created a new market. In the first situation, you'll face an indefinite number of competitors (or several large ones). in the second situation you're competition-free... until you start earning money. As soon as you grow your newly created market (meaning grow popularity), you'll attract other companies.

Both situations result in: you will always have competition. All that is taught in an MBA about fighting competition and strategic matrices is nice to have. But all assumptions and long-term strategies will be old after six months.

Facing competition, in my view, is: - observe how they act in the market - observe their business model - talk to them, share what you want to share and learn together - are they targeting customer segments that you've left out? - why are they targeting those customers? - what are they doing better than you?- focus on your product, your customers, deliver the best services you can, and the word will spread automatically

I suppose, you cannot grow/cover a worldwide market within one year (not even U.S.). Not on a startup budget. Grow and learn. Improve and sell. And you'll bail-out competition.

Wow, if I could "...assume an existing market and an existing pipeline of customers..." then I could be like Steve Martin when he revealed how we could make a million dollars and not pay taxes: "First...get yourself a million dollars. Then..." Everybody wants to do what they're trained to do, or what they enjoy, or whatever fits their ideas of what is important or needed. But though sales is not taught in any institution of higher learning, and general management, financial and technical types consider it beneath them, if someone doesn't do it they will all be on unemployment soon enough.

Dharmesh - Great post! I'm especially moved by the fact that your focus is on actually running a viable, profitable business than on making your business artificially attractive to investors. Thank you.

I've been training new entrepreneurs for over a decade and you are dead on with this article. You can't say enough about being likable--having social skills. I'm creating an ebook on Networking for Introverts that will address this issue. It doesn't matter if you have the best strategy or product if people think you are "standoffish" or anit social.

How true it is to be likeable. Although not rational, being likeable does have a huge benefit that being overly truthful or overly pragmatic or overly knowledgible. After all, all "contacts" are humans and when someone likes you, you are much better off that the rest.

Ricardo Fortunato Barcelos

I am just finishing my first MBA term in IE Business. But really, this post taught me more than some classes I already had. Congratulations! I seams great output for future MBAs! P.S.: I was not an Investment Banker...

Aarn Wennekers

If you get your MBA on-line, then the lessons above were likely not covered. Choose your program wisely.

Any entrepreneur who seriously want to succeed should print your Top 10 list and recite it often.

From a fellow entrepreneur who just nursed a startup past the 5 year mark.

Tarun Mishra

MBA often teaches subject which seldom work in business world. Sorry, no offence.

MBA teaches about tools which have worked in the past but has no guarantee that it will work in future.

The entrepreneurship is not about understanding ROI, Depreciation, Cash flow, Taxation etc but this is about having vision, understanding the meaning of value, recognizing changes, Connecting with people, motivating people, spreading hope,leading from the front.

Unfortunately no MBA courses teaches any of the above. Thats is why very few MBAs are entrepreneur.

Great post! As a startup CEO (without an MBA) I find it helpful to keep a focus on 3 key questions: - what are we selling? - who are we selling it to? - what stands in the way of selling it right now?

Often you can start selling something simpler, to more customers, sooner than you think.

@ZackSteven

Brett

Very many good comments and posts. I have been a part of several start-ups in the ASP arena and have seen my share of mistakes. The lessons learned are not taught in a classroom but come from real life experiences. The failures were a result in basic human nature such as being stubborn, inability to delegate, making quick decisions without understanding the possible risks associated with the decision. Selling is adaptability as there are many types of customers - each with their own comfort levels and needs. Just when you think you have exhausted all options - that means you either went past it already or you still have one more option; you just haven't found it yet, but it is there. Just like anything out there - we have all have our strengths and weaknesses, recognizing them quickly to take appropriate actions is vital to success. Nice job Dharmesh.

Very valid points. Am not an MBA and I have launched a few start-ups on the road to success. For me the point about "Organizational Culture" seems to be the most important. I believe an organization succeeds if the emphasis is on continuous learning and sharing. And of course, you deal with people and not "Human Resources" all the time. Thanks for sharing your insights.

I have a Managing Business Alone (MBA) degree from the University of First Hand Experience. My management team consists of me, myself and I, along with an extensive network of professional advisors who are available as needed. My experience with the other sort of MBAs has demonstrated that schooling does not and cannot teach common sense, intuition, attitude or integrity.

Indeed great article and great learning’s. I am not MBA - presently doing PGDBA. I feel one more point might be possible to add as per my experience and learning’s --

1. MBA/PGDBA business school do not teach How to do mistake --Because it’s natural and part of human being. They also do not teach how to correct it through mentors, instead of correcting yourself. Business school always teach to become MASTER IN BUSINESS with a gap of administration.

I am always in search of good mentors and experience people from all walks of life. Feel free to invite me – I will be glad if i can help you or learn more from you.

It's hard to remember that an MBA is worth the paper it's printed on. Most people who have had truly successful experiences with business don't have that oh-so-important Master's Degree that seems to give some the inflated sense of hubris.

if you look at the top ten richest people in the world you will notice more than one drop out.

Great article and wonderful comments. As CEO, as a founder, as a serial entrepreneur i can say without a doubt that start ups are hard, but enriching beyond belief.

Almost all the comments here state it but a start up teaches you to stay in the fight and hopefully with a great team. Hope is the key word. Hard work, determination, stubbornness, brains, luck, sales and hope... that is what will enrich you and hopefully pay the bills.

Great post. Raises something I'd be curious about--how many MBA's go into start-ups? I have an MBA, and found it very similar to my undergrad in that it grooms you well for working within a very large corporation: get every last detail, analyze and then over analyze, and don't make decisions until you have done these steps at least once. I would argue the difference between a large, established company and a start-up is learning to make decisions without perfect data. Sometimes what you have has to work. And yes, start-ups do provide a much more broad education, as there is no doubt you'll be exposed to new areas and expected to help out with this you would have never before considered.

Shwe

Excellent post.

Exactly why I did my MBA at night, while working at a start up.

Business school is supposed to teach you things that you would not learn at work, at least not till late in your career.

Although an MBA doesn't teach you everything, business school isn't just game theory and economics. For example Northeastern's MBA program includes case studies on everything from small biotechs to large multinationals.

I joined my start-up about 3 years ago (without an MBA) and found that after the fun of creating web-sites, talking with business partners, and building the internal team that none of these efforts brought revenue into the business. Losing money is not sustainable and raising capital in this market is all but impossible. For the past 1 1/2 years I've gotten up close and personal with INCOMING CASH, OUTGOING CASH, CASH-FLOW, and LONG TERM DEBT, which I review at least twice every week. I also learned how to be nice, clear, and open with all the people waiting patiently to get paid and creative with Accounts Payable to expedite payments. That being said, I'm hooked and do not plan to "work for the man" anytime soon.

I'd like to emphasize item #1 - Cash is king. When we first started out, I kept a monthly cashflow spreadsheet for that very reason. The difference between what's coming in/out and WHEN it's coming in/out is critical.

Turns out that even when you've got a purchase order, you might not get paid on time. That means you might run out of cash even though QuickBooks says you've made a nice profit. Oops.

If you do nothing else, manage your cash like it was, well, cash.

Jeff

I find the perspectives very relevant. I have an MBA from Columbia and went into software sales after some deliberation. I've been in four start-ups, and have had a blast. It's all about revenue and not an MBA.

Another reference is the 1984 book, "What They Don't Teach You at the Harvard Business School".

I don't have 10 more since there are so many gems on this page. I would only add the following: 1. What ever it is you sell is what needs to get the most focus day to day. After all, it is the only thing that makes you money. 2. Treasure simplified operational reports, financials are for bankers an investers, they arrive too late to do much good. Your reality is occurring right now. 3. Spend a good amount of time just looking. You'd be surprised what you see! 4. Start ups take energy because you are going against inertia to build momentum, but much of what is done is, well, not particularly important or useful. Figure out fast where you are wasting time, effort, human potential, and eliminate or minimize the waste. 5. Try to keep balance. Working without sleep and on adrenaline only gives the impression of working hard, much of the effort is wasted, and tired people make bad decisions. 6. Remain calm and alert. Change happens quickly in the beginning. 7. Stop shooting from the hip, it mostly misses the target and can kill innocent bystanders. 8. Just because you are the boss/owner doesn't mean you know or are supposed to know. 9. Treasure approximation and watch your cash flow.

While I agree fully that an MBA is not necessary for a startup, it may still be beneficial to your success. I am just a few months away from completing my MBA and actually started it (as well as my undergraduate) with the purpose of eventually starting my own business.

I don’t agree with everything in the post, but there are definitely many lessons that are not taught nor can be taught in B school. The two biggest of these are that B school cannot teach you to fail and no two businesses run the same way. Failing is how we learn and grow, without which we stagnate and continue in the same ruts. Businesses are a lot like people, no two are the same. Each has different cultures, backgrounds, operations, and personalities. So B school cannot teach every aspect of running and operating a business. This said, you must have your own personal reasons to obtain an MBA or not. No one can tell you whether or not you need an MBA to start a business.

Below are 7 reasons I chose to pursue an MBA (in no particular order):

1. Provide me a stepping stone to see over the complex tangle of trees and underbrush of the corporate forest.

2. Open my mind to areas of business I may not think about normally

3. Learn from others' experiences

4. Networking, it’s amazing the connections that are made through school

5. Start-up ideas, I’ve spent countless nights after class contemplating ideas from class and how they can be applied to a start-up.

6. Investing, understanding how the corporate world works helps to conduct proper due diligence when researching investments.

7. Discovering tools and techniques that have worked in the past and then examining them to determine if they are still applicable or how they can be adapted for now and the future.

As mentioned earlier, a degree does not make a person and just because someone has a degree does not necessarily make them any better than the person without a degree (one more lesson not taught in B school).

Thanks to everyone for the great comments and thanks to dharmesh for starting it!

E=MC squared. The reason they haven,t been able to figure it out is simple. They have been looking for the answer in all the wrong places. Experience = Mistakes x Commonsense squared. Once you understand this , the energy that flows through any enterprise is unlimited.

Planning without action is hallucination - Execution of the Strategic plan is as important as the plan itself.

I have seen many very solid strategic plans put together and then as the first roadblocks appear people run off and try 100s of other things that take them way off the strategic plan.

We have a bit of a manifesto on this in our company http://bit.ly/M5Wj8 - RapidInfluence I think there is a lot of focus on planning in the MBA realm but the action part or maybe the difficulty of the action part is somewhat skimmed over.

This is the second post that I have read on Mr. Shah's blog. Another solid one!

Points #2 and #3 were the most meaningful to me. Even as only a student who is passionate about entrepreneurship, I agree that learning how to say "no" to opportunities can be one of the most difficult lessons to learn. And sleep...about that! Haha.

Mr. Shah: I think you might enjoy meeting Larry Chiang (www.larrychiang.com, www.twitter.com/larrychiang). He is the author of the upcoming book "What They Don't Teach You at Stanford Business School" (http://www.whattheydontteachyouatstanfordbusinessschool.com/)

As you may tell by the date of this post, I am new to the group. I think your article did a good job on pointing out "theory vs. reality". Not everyone needs a MBA to run a successful business.

However, for me, I have been a business owner and management professional for over 20 years. I took the last year off from work to complete my MBA. I am so glad that I have the theories to strive for and the experience to know which ones may work. Professionally, I wanted to add more value in my services by offering my clients more in-depth knowledge to draw from. Thanks, Constance

OnTheSidelines

Since coming out of my MBA, I figured that I would spend a couple of years working with entrepreneurs rather than being one so that I could learn the start up mistakes on someone else's budget. In the first six months of working with an entrepreneur, I learned twice as much as the whole course at a (top) business school. I felt like the squeaky clean recruit landing in the war zone.

A couple of observations -

1. entrepreneurs are amazing people. Anyone who can start a company, fill it with talented people and get traction is a person one cut above the average. That stands true whether they make it a success or not. Anyone like that should be supported loyally, not just by staff but by larger companies who have a discretionary 5% on their marketing budget which could make the quarter of a new company, just by the association or experience.

2. entrepreneurs are a pain in the ass. They figure that because they own at least a large chunk of the company, then all the other employees should act like they own the company. Often they forget that the rest of the team don't and will resort to emotional blackmail with phrases like "He's a big company guy out of his depth" (= I didn't tell him the job involved Saturday and Sunday mornings when I had a brainwave), "It's a start up, everyone needs to wear a variety of hats" (= I don't know how to do it, but you said that you once met a PR person/real estate agent/headhunter) and the best one: "I'm proud of you" for doing something small (= this is the first company that has ever been built and you didn't have a career until you came here).

3. entrepreneurs are easily influenced. Whenever they recruit, they do so for one of two reasons - you worked for a brand they want to be ("He worked for Google") and by association you'll make it rain cash from a clear sky, or you impressed them with processed thoughts, lingo and ideas at the interview and you're the new Messiah. Both have a very short honeymoon period.

The first point is the decider. The other two are the caveats. I can't wait to start my own firm and ignore my own advice.

Good article overall but the title is a little misleading. Top MBA schools actually teach these things - especially if the student is perceptive. Granted, there is a need to do some things in practice before you appreciate what matters, what works and what doesn't. By the way, I think Investment Banking is an excellent career, it helps people understand the least understood aspect of business - Finance. The article is good overall.

A very interesting read. Just to add my thoughts - I believe there is some value in having done an MBA but I'm recommend getting some real world experience for a few years and then doing a part-time MBA (I did mine with the Open University). MBAs have a certain appeal to VCs if you ever get to the stage of trying to raise that sort of funding...

William McCarey

First, you have a great sense of humor. That makes it easy for you tobe likable.

Second, Ravi Sharma and Sanjay Bhatia above both commented on something I have found to be critical to startups. You gotta get some experienced talent on-board early! Yeah, it's nice to hire everyone your age, but they haven't made the mistakes and found the results that older employees have. I am currently consulting with three stratups in the SF Bay Area who have a great product, but no idea how to mass produce it, qualify it, or keep abreast of the competition. That's where my decades in the technical industry help them. So don't forget to hire experienced(10+ years) experts. Saves big bucks in the long run.

It's sad that such potentially valuable programs miss the sales aspect altogether as mentioned by Ilya on July 8. If you're an unemployed sales person with an MBA (or know someone who is) please click my link above and we'll have some fun learning the one component left out of your MBA training.

If you "personally hate sales" then you should consider a career in government or academe. Every entrepreneur, founder or employee, can sell and understands how and why it is so important. People who build credentials so they don't have to sell are trying to hide in a burrow, and their misunderstanding of what selling is, in my experience, is usually complete, meaning that they don't like it because they have no concept of what it is.